Savers could be forgiven for feeling a bit queasy after the rollercoaster of markets’ highs and lows during the past couple of months. Portfolios plummeted in October then rallied strongly in November and December, only for risk appetite to wane again earlier this month before yet another rally.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Funds invested in shares and bonds rallied throughout November and December, with returns being between 5-10% on average over that period. For bonds, that is the sort of return you would hope to get over one or two years in most environments.
“Since New Year though, there has been a change in investor appetite, with bonds giving back a chunk of those gains and the FTSE 100 losing value too. While the FTSE is now only down 1.2% so far this year, it had fallen by 3.6% earlier in the month before recovering a little.”
Performance of the FTSE 100 index over 1yr
Source: FE Analytics
Even though the US and Japanese stock markets hit new highs last week, escalating conflict in the Middle East and the dawn of a year with so many elections – on top of recent market volatility – have made some investors nervous.
Coles said: “Things feel volatile. This can make investing scary, with a lot of people asking themselves: is now the time to invest? Or should I wait for further falls? Or should I sell what I bought back in October as I’m in profit on that right now?”
She recommends that investors grit their teeth and remain invested and that they diversify their portfolios. She also advised investors to take advantage of market dips to invest in the shares of high quality companies at lower prices.
With markets moving so rapidly, ISA investors might derive some comfort from outsourcing asset allocation decisions to an expert. That being the case, Hal Cook, senior investment analyst at Hargreaves Lansdown, suggested Troy Trojan and Pyrford Global Total Return.
The £5.5bn Troy Trojan fund is managed by FE fundinfo Alpha Manager Sebastian Lyon and Charlotte Yonge. They aim to outperform inflation (as measured by the UK Retail Price Index) and protect wealth by investing in four ‘pillars’: equities, bonds, gold and cash.
“The first pillar contains large, established companies Lyon thinks can grow sustainably over the long run and get through tough economic conditions. He’s tended to focus on companies based in developed markets, such as the UK and US. The rest of the fund is made up of investments that could bring some stability to the portfolio during more difficult markets,” Cook explained.
“The second pillar is made from bonds, including index-linked bonds. The third pillar consists of gold-related investments, including physical gold. Gold often acts as a safe haven during times of uncertainty and can potentially perform well if inflation takes off or key global currencies weaken. The final pillar is cash, which offers important shelter when stock markets stumble.”
The £850m Pyrford Global Total Return fund invests in global equities for growth, as well as government bonds and cash for diversification and capital preservation.
It is managed by Tony Cousins who has three objectives, according to Cook. “The first is not to lose money over a 12-month period. The second is to deliver an inflation-beating return over the long term, and thirdly, to do this with low volatility – fewer significant ups and downs in value than a fund invested entirely in shares.”
Cook concluded: “This could be a good option for a more conservative portfolio, or a way to bring some stability to a broader investment portfolio.
Performance of funds versus sector and inflation over 10yrs
Source: FE Analytics
Cook also recommended a fixed income fund – Invesco Tactical Bond – which would provide diversification for equity-focused ISA portfolios.
The £955m diversified bond fund is managed by Stuart Edwards and Julien Eberhardt, who aim to deliver income as well as capital growth, whilst trying to minimise losses during down markets.
“Unlike some other bond funds, the managers are not purely focused on income and instead think the overall return is more important,” Cook pointed out.
Performance of fund versus sector over 10yrs
Source: FE Analytics